Aliasing refers to the jagged appearance of diagonal lines, edges of circles, etc. due to the square nature of pixels, the building blocks of digital images.

Anti-aliasing

Anti-aliasing makes the edges appear much smoother by averaging out the pixels around the edge. In this example some blue is added to the yellow edge pixels and some yellow is added to the blue edge pixels, thereby making the transition between the yellow circle and the blue background more gradual and smooth. Most image editing software packages have "anti-aliasing" options for typing fonts, drawing lines and shapes, making selections, etc. Anti-aliasing also occurs naturally in digital camera images and smoothens out the "jaggies". Read here about "anti-alias" filters.